Op-ed: Federal government shouldn’t dictate credit card fees

The following opinion piece appeared in the Albuquerque Journal on October 8, 2023. It was written by RGF board member Julie Wright.

I love eating New Mexican food at Tomasita’s. When I do, I often pay — as many customers do — with a credit card. It’s just easier than running by the ATM and making sure that I have enough cash on hand to buy lunch.

It is unfortunate that the owner and manager of the restaurant is asking for the federal government to impose price controls and routing mandates on the credit card industry, as he wrote in a (Sept. 30 Journal) opinion piece.

As someone who manages a small business with a lot of credit card transactions myself, I understand the impact of credit card fees on my company’s bottom line, but — like a vast majority of other businesses — I’d rather dramatically expand the number of customers I serve and make them happy than limit my company to cash and other forms of payment.

More importantly, the last thing we need is a federal law dictating to businesses what they can charge for their services. Someone who owns and manages a private business in New Mexico should understand better than most that empowering government to set prices via routing mandates in such an important sector of our economy will be catastrophic. That’s exactly what the Credit Card Competition Act (S. 1838/H.R. 3881) would do if Congress passes it. And that’s exactly why virtually every financial institution in the U.S., every major airline, millions of union workers, and many retailers with rewards programs oppose this bill.

Here are a few important facts. The average credit card transaction is $96, compared to about $22 for cash. Restaurants and other businesses make a lot more money accepting credit, and cash is of course not free, but its costs are just less transparent that debit and credit.

And then there are the politics of the issue. Tomasita’s accepts American Express. They are the second-largest credit card issuer in the U.S. and happen to have the highest fees. Ironically, AMEX is exempt from the federal legislation he is calling for. That doesn’t make much sense at all. Our new reality could be an AMEX monopoly, where they are the second network on every credit card, charging the highest fees and gaining market dominance by virtue of this bill. Small businesses could end up paying more if the Credit Card Competition Act passes. If that sounds crazy, many actually had higher debit costs after similar regulations were imposed in 2010.

Perhaps the most outrageous statement in his article was that businesses like his “get almost nothing back for paying credit card fees.” That’s simply not true. Aside from the much higher average transaction amounts, credit card fees pay for the convenience of the global financial network, which delivers payments into the businesses’ accounts immediately. No room is left for theft — either by employees, customers, or thieves — and no trips to the bank are necessary.

And, don’t forget about the points and cashback for consumers and small businesses with cards.

Americans can take vacations, earn cashback, and gain access to all manner of benefits through the strategic use of credit card points. These points are valuable — roughly $100 billion a year back to consumers and businesses — and are yet another way in which credit cards help businesses of all kinds expand their customer bases and bring in more revenue.

I appreciate our local restaurants and am sad that so many closed during the pandemic, but overturning the entire American financial system is not the solution.

Julie Wright is a board member with New Mexico’s Rio Grande Foundation, a research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.